The Facts on Credit
Those who are wise never
pay interest… they earn it!
What is Credit?
 Another word for credit is loan…
 3 Main types of credit:
 Sales
 Credit you receive when you make a purchase and
promise to pay later.
 Cash
 Credit you receive when you borrow cash and promise to
pay it back later.
 Service
 Credit given for a service one receives (utilities, dentist,
hospital, etc.) that will be payed for later.
How much credit
can I use?
 The total amount of credit should not exceed 20%
of one years NET income…
 How much can a person borrow
that makes $36,000 net?
 Answer: $7200
 (This includes your car loan…)
 $7200/12 months= $600 a month!!!
(not including interest)
The Cost of Credit
Principal
Interest
(rate)
Years
Payment
Total
Interest
Total Cost
$1,000.00
12%
2
$47.07
$129.79
$1,129.79
$1,000.00
21%
2
$51.39
$233.21
$1.233.21
$5,000.00
12%
8
$70.68
$1,785.71
$6,785.71
$5,000.00
21%
30
$87.67
$26,561.28
$31,561.28
$150,000.00
7%
30
$997.00
$209,266.00
$359,266
$150,000.00
7%
15
$1,348.24
$92,683.00
$242,683.00
$350,000.00
7%
30
$2,328.56
$488,279.00
$838,279.00
HIDDEN COST OF LOW
INTEREST CREDIT CARDS
 Balance transfers usually charge 3% on
principal
 $30 late fees with no grace period
(Considered late one day after due date)
 If late, interest rate bumps up to 21%
 $30 over balance fees
 Convenience checks have transaction
fees
Advantages of Credit





Stimulates the economy
Helps us take care of emergencies
Convenient – ordering over the phone
Establishes a credit rating
Advance notice of sales and cask back
on purchases
 Easier to exchange and return items
 Detailed monthly bill
Disadvantages of Credit



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It always costs money
Risky to spend future income
Encourages careless buying (Needs vs. wants)
Facilitates over-buying which increases
sacrifice that must be made eventually
 Often increases family conflict
 May lead to Bankruptcy
 Increases the cost of doing business
Payday Loans
*The borrower requests a loan for a
short period of time, usually one to four
weeks.
*“Payday loan fee” - Up to 360%
interest.
*If the borrower continues to have a
financial problems and cannot pay the
loan as promised, the interest keeps
building on the debt.
Other Options….
 Try a small loan from a credit union
 Ask for pay in advance from your employer
 Consider a loan from family or friends, (be sure
to have the terms of the loan in writing)
 Use a credit card cash advance
 Request additional time to pay the bill from
your creditors.
 Pawn Brokers
 Or… just don’t borrow money!!!
Credit Rating/ FICO Score
 A credit rating assesses the credit worthiness of an
individual. Credit ratings are calculated from financial
history and current assets and liabilities.
 A credit rating tells a lender or investor the probability
of the person being able to pay back a loan.
 In recent years, credit ratings have also been used to
adjust insurance premiums, determine employment
eligibility, and establish the amount of a utility or
leasing deposit.
 A poor credit rating indicates a high risk of defaulting
on a loan, and thus leads to high interest rates, or the
refusal of a loan by the creditor.
Establishing Credit
 Have checking and savings accounts and
manage them responsibly. (These are not
reported to the credit agencies, but help
individuals develop a pattern of budgeting.)
 Use layaway plans at stores
 Save for large down payments on cars and
other purchases.
 Ask someone to be a cosigner for the loan.
 Always make payments for bills ON TIME!!!
(cell phone, utilities, credit cards, house
payment etc.)
If you are REJECTED…
 Obtain a copy of your credit report to
determine what the problem is.
 If something is incorrect, notify the credit
bureau in writing.
 Fixing credit problems may take up to six
months.
Let’s talk interest rates…
Bad Credit vs. Good Credit

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Bad Credit
$3000 on credit card
18% interest rate
If minimum payment of 2
½% is only made…
 It takes 22 years and
$4100 dollars in interest
to pay of the debt.
 Total:
$7100 to borrow $3000




Good Credit
$3000 on credit card
4% interest rate
If minimum payment of
2 ½% is only made…
 It takes 11 years and
$400 in interest to pay
off the debt.
 Total:
$3400 to borrow $3000
Scary Statistics
 The average American household has $9200
in credit card debt.
 In 2005, 21,476 people declared bankruptcy in
Utah.
 At the end of 2005, Utah was ranked 3rd in the
U.S.
 In Utah, bankruptcies are filed at the rate of
one in every 37 homes!
The national average is one in every 73
homes!
Moral of the Story…
 Don’t spend more than you earn!!!
 Use credit wisely!!!
 Don’t get into debt!!!
References
 http://en.wikipedia.org/wiki/Credit
 http://www.bankhs.com/teachers/utah_ba
nkruptcy.html
 http://www.utah.freebankruptcyevaluation
.com/bankruptcy-statistics.html
 www.Suzeorman.com
 UEN Data Base